Thursday, March 29, 2012

Industrial Policy in oil and gas exploration in US

The Bush administration in the US led an aggressive push to both deregulate oil and gas exploration drilling activities and unlock newer reserves in an effort to limit America's energy dependence on external sources. A task force, led by Vice President Richard Cheney and comprising of top oil executives was established to push policies that promoted the aforementioned objective.

The NYT has an excellent story that illustrates how proactive policies, some of them controversial for various reasons, including allegations of cronyism, played a critical role in ushering in a boom in oil and gas exploration in the US. 
The task force’s work helped produce the Energy Policy Act of 2005, which set rules that contributed to the current surge. It prohibited the Environmental Protection Agency from regulating fracking under the Safe Drinking Water Act, eliminating a potential impediment to wide use of the technique. The legislation also offered the industry billions of dollars in new tax breaks to help independent producers recoup some drilling costs even when a well came up dry.

Separately, the Interior Department was granted the power to issue drilling permits on millions of acres of federal lands without extensive environmental impact studies for individual projects, addressing industry complaints about the glacial pace of approvals. That new power has been used at least 8,400 times, mostly in Wyoming, Utah and New Mexico, representing a quarter of all permits issued on federal land in the last six federal fiscal years.

The Bush administration also opened large swaths of the Gulf of Mexico and the waters off Alaska to exploration, granting lease deals that required companies to pay only a tiny share of their profits to the government.
All these measures encouraged oil companies to start investing in new exploration technologies to access the more difficult oil and gas sources, especially deep drilling for oil through high-pressure hydraulic fracking and horizontal drilling to unlock gas reserves beneath shale rock formations. Once the oil prices started rising in 2005 and 2006, these newer technologies suddenly became attractive and a boom ensued in deep drilling and unlocking shale gas reserves. Deep drilling and fracking opened up large new oil fields, including off-shore fields. Similarly, horizontal drilling and high-pressure fracking opened up massive reserves of gas underneath layers of shale rocks.

There is another distinguishing feature of this aggressive industrial policy push which is of great relevance for countries like India. Deep drilling in West Texas desert and off-shore locations in the Gulf of Mexico and Alaska coast, raised considerable opposition on environmental grounds. There have been valid concerns about the adverse impact of hydraulic fracking on gound water sources and surface run-off pollution of nearby water bodies. However, the federal government has not strayed away from its policy focus,

How the country made this turnabout is a story of industry-friendly policies started by President Bush and largely continued by President Obama — many over the objections of environmental advocates — as well as technological advances that have allowed the extraction of oil and gas once considered too difficult and too expensive to reach... Some areas of intense drilling activity, including northeastern Utah and central Wyoming, have experienced air quality problems. The drilling technique called hydraulic fracturing, or fracking, which uses highly pressurized water, sand and chemical lubricants that help force more oil and gas from rock formations, has also been blamed for wastewater problems. Wildlife experts also warn that expanded drilling is threatening habitats of rare or endangered species.
 In the US, the consequences of this aggressive industrial policy push has been  hugely beneficial,

Not only has the United States reduced oil imports from members of the Organization of the Petroleum Exporting Countries by more than 20 percent in the last three years, it has become a net exporter of refined petroleum products like gasoline for the first time since the Truman presidency. The natural gas industry, which less than a decade ago feared running out of domestic gas, is suddenly dealing with a glut so vast that import facilities are applying for licenses to export gas to Europe and Asia. 
National oil production, which declined steadily to 4.95 million barrels a day in 2008 from 9.6 million in 1970, has risen over the last four years to nearly 5.7 million barrels a day. The Energy Department projects that daily output could reach nearly seven million barrels by 2020. Some experts think it could eventually hit 10 million barrels — which would put the United States in the same league as Saudi Arabia.
In fact, this boom in oil and gas exploration is providing a much needed boost to the national economy itself.
The newfound wealth is spreading beyond the fields. In nearby towns, petroleum companies are buying so many pickup trucks that dealers are leasing parking lots the size of city blocks to stock their inventory. Housing is in such short supply that drillers are importing contractors from Houston and hotels are leased out before they are even built. 
The contrast with the flip-flops and prevarication that characterises the central government policy on mining and environmental concerns in India could not have been more stark. The source of one of the biggest infrastructure bottlenecks, the relatively slow electricity generation capacity addition, can be traced to the failure to open up new coal mines in the face of environmental opposition. The consequent impact on the national economy has been devastating.


Mahindra MM540 Modified said...

The oil and gas industry is redefining itself amid uncertain energy policies and a changing environment. As the pressure to meet future energy demand mounts, global alliances are becoming more critical.

Dan Beecroft said...

The oil and gas drilling industry is a very promising one, as need for energy is never going to end.